Relationship between Globalization and Corruption - Literature review Example

Running Head: Relationship between Globalization and Corruption Relationship between Globalization and Corruption Name Course Lecturer Date Introduction Corruption is a historical story that is as ancient as the society. Periodically, explosions of fury from long-suffering submissive victims trying to eliminate corruption have existed. It has constituted a causal as well as dominant element in many revolutions. The revulsion corruption evoked was a fundamental urge during the Protestant Reformation and is still present across the globe, in the richest and poorest countries. However, there are ancient habits along with new aspects that make corruption nowadays more intolerable as well as easy to spread. The main one is easy and increased movement of goods, money and people. Globalization has generated new openings for both productive and illicit wealth creation (Lewis, 1996). Globalization leads to increased corruption. Definition of globalization Narrow Akhter (2004) maintains that, globalization has a range of meanings. The popular perspective mainly deals with the narrow meaning and associates globalization with expressions such as Coca-Colonization and McDonaldization. These nominalizations portray a potent picture of multinational companies driven by common goals of growing their business internationally. Moreover, since many of the famous multinationals are U.S-owned firms, globalization actually has turned to be a substitute for Americanization. Broad In a broader perspective, globalization falls under three categories namely organization, country and industry globalization. Organization globalization refers to the process via which companies move towards incorporated network structures. The concept of incorporation of operations throughout nations as companies globalize their operations exists in various global business research sources. Industry globalization is theorized as a sequence of connected domestic industries whereby rivals contend against one another on a worldwide basis. Industry globalization is also characterized as diverse competitive settings that are variedly interdependent. The indicators used in measuring industry globalization include level of global trade, global product standardization and intensity of global competition. Country globalization integrates sociological and economic perspectives. Sociologically, globalization is a social procedure whereby geographical constraints on cultural and social arrangements recede. Economically, globalization refers to the growing internationalization of manufacturing, marketing and distribution of services and products (Akhter, 2004). Definition of corruption Narrow According to Wang & Rosenau (2001), corruption refers to the collaboration amid private actors and public officials for personal financial benefits in breach of the interest of the public. The level and scale of corruption range broadly, from giving of bribes to low-level public servants to distortions of big procurements as well as key policy decisions. Broad Akhter (2004) notes that, in varying levels, bureaucratic corruption has become a routine across the globe. Corruption denotes the misuse of public resources and power for private benefits. It makes the procedure of exchange less transparent, causing behaviours that satisfy private actors and government officials’ individual interests. Rose-Ackerman (2002) further asserts that, grand corruption involves the paying of bribes by firms to obtain favoured treatment in concessions, privatization deals and contracts. The benefits might comprise of being awarded a contract or obtaining information that increases the chances of a bid of becoming successful. Firms also make payoffs to influence the future regulatory setting or requirements of contracts. Politicians and public officials when pursuing personal interests will participate in corrupt practices if supposed benefits prevail over costs. Corruption takes place due to the government’s monopoly power over resources needed by the public. Globalization decreases the occurrence of corruption According to Akhter (2004), corruption takes place in a setting where the governance structure’s balances and checks have failed. Conversely, with superior integration of investments and trade due to globalization, both local and global constituents will start to require the administrative system to be more transparent and accountable, hence lessening chances of corrupt practices. Moreover, as a nation expands its political establishments and capacity to maintain laws via judicial processes, corruption will be reduced. Globalization of financial information denotes a situation where foreign investors are in a position to access the financial information of the countries in which they have investment interests. The adoption and use of the International Financial Reporting Standards (IFRS) is facilitating globalization of accounting information and has been seen to foster foreign investment. IFRS are of better quality compared to local standards and thus, enhances accountability and transparency in financial accounting reporting, which in turn limits the possibility of corrupt practices. Countries with enhanced property rights and lower corruption benefit more from using IFRS (Amiram, 2012). Globalization increases the occurrence of corruption Globalization increases corruption in a number of ways. First, globalization has forced economies like Russia and China to create mixed economies. In these circumstances, combination of government intervention and market mechanisms provides unprecedented opportunities and incentives for corruption. Moreover, recent economic growths in several emerging markets, including Mexico, Indonesia, Malaysia and Brazil, have taken place without sufficient regulation and hence also fostered growing business-related corruption. In addition, several economic globalization aspects constitute possible sources of increased corruption. As mounting numbers of firms from Northern developed nations expand their business operations into less developed nations, corruption chances increase. This is because; less developed countries have less developed regulative framework and monitoring, which subjects the foreign firms to bigger temptations of engaging in business practices not permitted in their home countries (Wang & Rosenau, 2001). Drawing from Williams & Beare (1999), globalization has both augmented the openings of corrupt practices as well as made detection additionally difficult because of proliferation of e-commerce along with financial centres. With the entry of WTO into China and increased globalization, the country has prospects of becoming the biggest exporter across the globe. However, globalization poses both opportunity and danger for China. While China experienced a 10.7 percent annual growth in its GDP from 1990 to 1999, 4 to 8 percent of the GDP comes from corruption. Such corruption permeates the daily life in the country to the extent that it amounts to normality (McCusker, 2004). Globalization has bred corrupt and illegal practices such as human trafficking. Globalization has seen the increased migration of people from less developed countries to developed countries in search of employment. Migrating people has become a source of income for individuals who trade in people. It presents individuals, whose other opportunities have vanished as a result of international markets and firms entering their nations, with new opportunities for making profit. Globalization promotes such activities through its contribution in the creation of links amid countries trafficking people and those receiving the people, as well as through enabling regional and domestic practices to be international in scale (Sassen, 2008). Role of international financial institutions in combating corruption Rose-Ackerman (2002) argues that, the IMF and World Bank cannot undertake individualized inquiry of corruption for the member nations’ legal systems. Conversely, they can try to combat corruption through their individual programs and may assist countries in designing control policies. Several reforms have been made on the World Bank’s procurement guidelines, which are aimed at disciplining corrupt companies by hindering their access to bank-financed projects in the future. Both the World Bank as well as the IMF seems more ready to withhold financial aid from nations where corruption impacts the capacity of the government to operate effectively. One way of assessing a country policies’ effectiveness may be to allow companies that are demanded to pay bribes to provide the IMF with a report on their experience. While the IMF cannot investigate personal complaints, a given pattern of corruption reports may provoke it to revive negotiations. Likewise, senior government agents who are pressured to receive payoffs by firms looking for favours can also report their experiences to the IMF. Such reports can be an initial step in executing the new procurement rule of the World Bank, which explicitly contemplates measures to discipline companies by limiting access to business projects funded by loans from the World Bank (Rose-Ackerman, 2002). Role of international financial institutions in facilitating corruption Digitalization of global finance along with the increase of tactical business alliances associated with globalization constitutes other grounds why corruption is on the increase. It has now become much easier to launder as well as distribute the benefits gotten from corrupt practices than before. International financial institutions such as IMF and World Bank, used to put up with corruption since they viewed the governments as development agents, and government involvement in the functioning of the economy certainly resulted in corruption. Currently, Transparency International alongside other organizations ranks World Bank’s five biggest national clients among the most corrupt nations (Wang & Rosenau, 2001). Conclusion Globalization can be categorized into three broad groups namely country, organization and industry globalization. Corruption is the use of public resources for personal gains. Globalization decreases corruption by requiring the administrative system to be more transparent and accountable as well as through adoption of IFRS. On the other hand, globalization increases corruption through creation of mixed economics, economic growth without sufficient regulation, and expansion of business operations in less developed countries that have less developed regulative framework and monitoring. Globalization also increases corruption through proliferation of e-commerce along with financial centres and opening opportunities for corrupt practices such as human trafficking. International financial institutions can facilitate corruption by viewing governments as development agents, while they can combat corruption by hindering corrupt countries from accessing bank-financed projects and financial aid. From here, it is clear that globalization increases corruption opportunities. References Akhter, S. H. (2004). Is globalization what it’s cracked up to be? Economic freedom, corruption, and human development. Journal of World Business, 39, 283–295. Amiram, D. (2012). Financial Information Globalization and Foreign Investment Decisions. Journal of International Accounting Research, 11 (2), 57–81. Lewis, F. (1996). The underside of globalization. The Unesco Courier, 6, 15-17. McCusker, R. (2004). China, Globalisation and Crime: A Potential Victim of Its Own Prospective Success? Journal of Financial Crime, 12 (1), 44-52. Rose-Ackerman, S. (2002). ‘‘Grand’’ corruption and the ethics of global business. Journal of Banking & Finance, 26, 1889–1918. Sassen, S. (2008). Globalization. In V. Parrillo, Encyclopaedia of social problems (pp. 413-417). Thousand Oaks, CA: SAGE Publications. Wang, H., & Rosenau, J. N. (2001). Transparency international and corruption as an issue of global governance. Global Governance, 7 (1), 25-49. Williams, J. W., & Beare, M. E. (1999). The business of bribery: Globalization, economic liberalization, and the ''problem'' of corruption. Crime, Law and Social Change, 32 (2), 115-146. Read More